Thursday, September 18, 2008

The Economy

I listen to news radio a lot throughout the day, and I try to follow the news online when I have time (ha!). When I hear headlines that I find fascinating, I want to post about them so very much. However, I generally don't like posting without researching and referencing information, for the sake of accuracy and clarity. I enjoy the process of researching because it gives me the opportunity to learn more about a particular topic. It's my geeky version of fun.

I yam what I yam.

The economy is a source of so much interest to me. I was an accountant at what I'll call an investment bank, for the sake of simplicity. But it's all so...UGH. Despite my inclination to do so, I'm going to refrain from researching too much because this post will turn into one of those "drafts" that never sees the light of day. Trust me, I know the signs. I'll just share a few news highlights that I've heard over the past few days, and some thoughts here and there. There's so much more, though!!
  • Short-selling stocks of financial firms has been halted in the U.K. by the Financial Services Authority (FSA) for the rest of the year, and all held positions will require full disclosure. The reason? Some are accusing short-sellers of spreading false information about companies (e.g., Goldman) to assure the stocks price drops.

  • On a similar note, the SEC is considering a temporary ban on short-selling.

  • I heard someone on the radio comment that the securities lending industry (short-sellers) saw all of the failures coming. For example, they shorted Lehman, Fannie Mae and Freddie Mac. I can't help but wonder if they foresaw Lehman's demise, or if helped spur it on.

  • As of yesterday (Sept 17), the Fed's bail outs totaled a staggering $816 billion, as follows:

    --$29 billion to help JP Morgan buy Bear Stearns
    --$200 billion to shore up Fannie Mae and Freddie Mac
    --$85 billion to keep AIG in business
    --$400 billion emergency credit line to banks
    --$102 billion in new FHA loans for distressed homeowners

  • Such bailouts have been compared to communist policies in other countries. The thing is that they have far exceeded the intervention of any communist country.

  • Washington Mutual, the nation's largest savings and loan, is putting itself up for sale rather than risk total collapse.

  • London based Lloyd's Insurance is selling itself to a Scottish bank.

  • Wachovia and Morgan Stanley may merge. If Morgan Stanley does merge, Goldman Sachs would be the only independent investment bank left compared to five at the beginning of the year.

  • Bank of America didn't get deeply involved in risky sub-prime mortgages.

  • Bank of America and Barclays were interested in buying Lehman, but when the Fed wasn't willing to help the purchase along by taking on some of Lehman's debt, as with the Bear Stearns purchase, both potential buyers backed out. Instead, Barclays was able to buy the specific division it wanted at a fire sale price once Lehman filed for bankruptcy and was essentially sold for parts. Why buy the car when all you need is the windshield wiper?

  • The 1999 legislation that broke down firewalls between commercial and investment banks and insurance companies created rules that institutions like AIG were able to exploit allowing for its current financial problems.

  • And the financial news of the day that has spurred actual positive activity in the stock market involves a systemic fix that resembles the Resolution Trust Corporation (the fix for the savings and loan crisis of the 1980s). An explanation from Marketplace:
    "What's being discussed today is something similar, where a fund would be set up by the U.S. government that would go into the marketplace and buy up unwanted mortgage securities and hold them on the sidelines until some of the panic calmed down."
ABC World News
NY Times